Starbucks Gold Loyalty program profitable?

Posted on November 16, 2008
Filed Under Business |

Attention all Starbucks patrons in the US, check outStarbucks Gold. It is a new loyalty program Starbucks is rolling out to help mitigate its plunging profits (97% this quarter). Here’s the deal for an annual membership fee of $25 you get 10% off all purchases, free coffee when you register and on your birthday, and a few other perks.
Starbuck logo
So how is this going to pay off for Starbucks? Let do some math. At say an average of $3.50 a cup, the savings is $0.35. So for your membership fee you need to order 72 coffees to break even. That is about 1 every 5 days. For those die hard Starbuckers that have cut down dramatically on their 2-3 latte a day consumption due the hard economic times are still going to buy more than one coffee every 5 days. For one they still need the caffeine kick, and two there is a comfort experience to shelter us briefly from the storm of the market.

Ok, back to the math… I’m going to save more money then I was otherwise definitely going to spend at Starbucks because of the loyalty program. Ah, anyone that’s taken Business 101 can then calculate that your net profits are going to be lower because Starbucks is giving discounting sales that would have otherwise occurred more than getting a lift in new sales. The loyalty membership is supposed to encourage more sales with a perceived greater value for money for the customer. Can someone explain to me how this is going to lift sales above the cost of the discounts?

Comments

One Response to “Starbucks Gold Loyalty program profitable?”

  1. Baron on November 16th, 2008 22:06

    Without any numbers to back up my guess, I’d have to assume that profit margins on things are much higher than 10% to begin with. I mean, that latte can’t cost more than a dollar or two. Given the lure of 10% off, people may end up going in more than they already do and while there, will probably end up picking up some even-higher-markup items like snacks. Increased sales with smaller overall profit margins are still good for business…

    Now if only Tim Horton’s would offer a loyalty program for this loyal addict.

Leave a Reply